Oil Spills and Will O’ the Wisps

Here are President Obama’s remarks on energy from last night’s address:

Each of us has a part to play in a new future that will benefit all of us. As we recover from this recession, the transition to clean energy has the potential to grow our economy and create millions of jobs -– but only if we accelerate that transition. Only if we seize the moment. And only if we rally together and act as one nation –- workers and entrepreneurs; scientists and citizens; the public and private sectors.
When I was a candidate for this office, I laid out a set of principles that would move our country towards energy independence. Last year, the House of Representatives acted on these principles by passing a strong and comprehensive energy and climate bill –- a bill that finally makes clean energy the profitable kind of energy for America’s businesses.

Now, there are costs associated with this transition. And there are some who believe that we can’t afford those costs right now. I say we can’t afford not to change how we produce and use energy -– because the long-term costs to our economy, our national security, and our environment are far greater.

As I’ve said here many times before I’ve favored a gasoline tax or, more broadly, a carbon tax for more than 30 years. I oppose a “cap and trade” approach because its results in Europe at the very best have been mediocre and it maximizes bureaucratic and political involvement in the process and, consequently, maximizes the likelihood of gaming the system thereby reducing its effectiveness.

Recently, I’ve begun to wonder if a carbon tax won’t produce a maximum of economic dislocation for a minimum of result. If in fact the largest individual oil consumers are the wealthy and the they consume a large fraction of all of the oil consumed, the results of a carbon tax on oil consumption may well be disappointing. I still favor a Pigouvian tax on oil. However, I think we need to have reasonable expectations of what it is likely to do and not do.

Energy independence, oil independence, and reducing our dependence on oil are interrelated subjects but they are not the same subject. Of these objectives mitigating the risk of our dependence on foreign oil is well within our grasp while reducing our dependence on oil per se is a will o’ the wisp. We will not accomplish that objective for the foreseeable future because we cannot afford to do so. Oil continues to be the most economical source and storage medium for energy in personal transportation and will remain so for some time. Holding out the prospect of changing this without economic consequences so adverse as to be intolerable, especially for the poor, is plain foolishness.

2 comments… add one
  • Andy Link

    I suppose it’s possible to make a progressive system where the tax rate goes up the more energy one consumes – kind of like the tiered pricing for energy, water usage, etc. in many localities. Of course tracking energy consumption isn’t straightforward and comes with its own set of issues.

  • Probably easier to do it in conjunction with the income tax system.

    However, my real point is that it might be the case that either cap and trade or a carbon tax would be using a meat-ax where a scalpel is what’s needed in which case the adverse secondary effects will overwhelm the desired effects which, if my suspicion is correct, will be highly resistant to the approach.

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